The Hidden History of the Debt Limit Hijack: Democrats Started It

I have a piece in the American Prospect today on five turning points in the debt limit fight. I think they’re actually in descending order of importance, and the biggest one is right at the top – this deal is the function of horrible economic stewardship in 2009 and 2010.

OBAMA AND DEMOCRATS COULD HAVE FIXED THE ECONOMY. While this sounds pie-in-the-sky, there’s actually a pretty simple solution to our economic woes. It involves higher near-term deficits, particularly spending to create jobs. The Obama administration admitted that it underestimated the extent of the recession, and last Friday’s report on gross domestic product from 2007 to present underlines the severity of the downturn. The stimulus package worked but was too small to counter the devastation caused by the financial crisis. If a Democratic Congress had approved a second stimulus plan—a $154 billion jobs bill passed the House in late 2009, when the Senate had 60 Democratic votes—the recovery could have been more robust. Instead, Democrats passed very small measures throughout late 2009 and 2010, none of which came close to the effort needed to truly boost the economy. What does this have to do with the debt ceiling? Political-science research shows a tight relationship between economic and electoral performance. A Democratic Party that markedly improved the economy in 2009–2010 would have been less susceptible to a Tea Party–led backlash. It may have held on to the House in the 2010 elections. That would have eliminated the possibility of a hijack attempt like the one we’re seeing now.

Go and read the whole thing if you like. There is one turning point I, because of space constraints, did not include in there. That happened at the end of 2009, when Evan Bayh, Kent Conrad, Dianne Feinstein, Mark Warner and Joe Lieberman threatened to not increase the debt limit if they didn’t get in place a fiscal commission that would recommend spending and entitlement cuts. That’s right, Democrats started the hijacking of the debt limit. Barely anybody remembers this, but it set the stage for the deal being voted on today.

Senators from both parties on Tuesday put new pressure on Speaker Nancy Pelosi to turn the power to trim entitlement benefits over to an independent commission.

Seven members of the Senate Budget Committee threatened during a Tuesday hearing to withhold their support for critical legislation to raise the debt ceiling if the bill calling for the creation of a bipartisan fiscal reform commission were not attached. (…)

(…) Congress is under pressure to raise the cap on what the federal government can borrow by mid-December. If the debt ceiling is not raised above its current $12.1 trillion mark by then, the government will exceed its borrowing limits and will be forced to default on the debt. Economists have warned that the inevitable result would be a lowering of the U.S. credit rating, triggering substantial increases in the interest rates the government is already paying.

Kent Conrad went so far as to say, “You rarely do have the leverage to make a fundamental change.”

For the first time, perhaps in history, members of Congress tied spending cuts to raising the debt limit. This was the blueprint off of which John Boehner and the Republicans worked. The panel that Conrad wanted, along with Judd Gregg, would have had a mandate to reduce the deficit through spending caps, tax reform and entitlements, and would have submitted recommendations for an up-or-down vote without amendments or the possibility of the filibuster. That’s EXACTLY what’s in the bill being voted on today.

The Democrats pushing this ultimately backed down. Eventually, President Obama signed a clean $1.8 trillion debt limit increase in February 2010. But that obscures the issue. First, something did get attached to the debt limit bill – statutory paygo, requiring that all new spending be paid for with taxes or cuts. Second, because of the pressure that Conrad and the Democrats put on leadership, they got a guaranteed vote prior to the debt limit increase on their deficit commission. It would have passed if Republicans who previously supported the idea didn’t bail at the last minute. At this point, President Obama, who had pivoted onto deficit reduction at the end of 2009, said he would by executive order put together the deficit commission. And so the original Catfood Commission was born. They’ve been talking about deficits in Washington, in the middle of a jobs crisis, ever since.

So the Democratic hijack did a few things. One, it taught John Boehner that the debt limit was not sacred, that members of Congress could play hardball and withhold votes, threatening default, without deep spending cuts. Two, it showed a path to a solution – an unaccountable deficit commission that gets a special process for its recommendations. Three, it turned the conversation to deficit reduction in a fundamental way, where it has stayed for the last two years.

The President could have stepped in at any time and shut that down. He could have told Conrad or Bayh to shut up and follow his lead. But this assumes that the President was against the whole idea of deficit reduction in the first place. We know he was not. In fact, all of these alternative solutions have to assume an actor in the White House who wanted to see a clean debt limit increase. It’s important for the public to know there were alternative, pushed by liberals and progressives, to what we see coming to pass today. But it’s just as important to recognize that nobody currently in power wanted to pursue them.